Vertical Integration

Vertical Integration

the unification in a single technological process of all or the principal links in production and handling, from growing the agricultural products through the realization of the finished products, under control of a single center—an industrial, banking, or trade monopoly. In vertical integration all stages of production and merchandising are controlled.

Vertical integration is one of the widespread phenomena of the agricultural economy of highly developed capitalist countries; it is a manifestation of the amalgamation of agriculture and industry and the subordination of farm production to large industrial and trading firms. Integrated agricultural enterprises make wide use of scientific and technical achievements in the fields of mechanization, electrification, and the application of chemistry, land reclamation, agronomy, and genetics. Vertical integration increases the subsequent growth of the concentration and centralization of production and capital in agriculture and leads to monopolization of the production and merchandising of a number of agricultural commodities; it brings monopolies huge excess profits and leads to a strengthening of their domination in agriculture. By this very effect, vertical integration sharpens social contradictions in the rural community.

The most widespread form of vertical integration is the system of contracts between monopolies and large and small farmers, on the basis of which producers supply the company with a certain product. The integrating firm provides the farmer with the necessary labor and raw-material resources, consultation, and so on. By means of vertical integration monopolies completely control production and establish not only a supply quota and the prices for agricultural production but also the size of that production and its technological level. Vertical integration has developed greatly in the countries of North America, especially in the field of poultry raising, which has led to the creation of large-scale enterprises, equipped with modern technology, for the production of broiler chickens and eggs. By 1969 in the USA and Canada, over 90 percent of the poultry was produced in integrated enterprises; in the Netherlands, 90 percent; in Belgium, 70 percent; and in the Federal Republic of Germany and in France, 60 percent. Chick production in the USA is virtually completely integrated.

In other branches of livestock raising, vertical integration is less developed. In 1967-68 vertical integration began to develop in the field of pork production. (In Belgium, 50 percent of pork production is integrated.) Integration is also widespread in sheep raising and in the production of canned fruits and a number of industrial crops (flax, cotton, and sugar beets). In the USA, for example, about 90 percent of the canned and frozen vegetables are obtained by plants because of vertical integration.

The development of vertical integration leads to changes in the process of regeneration of capital in agriculture. The processing of agricultural production becomes the exclusive business of industry. Thus, all or almost all that is produced by agriculture assumes a commodity character and enters industry as raw material. The immediate producer—the peasant or farmer—is gradually transformed into a supplier of the respective monopolies. At first he suspends commercial activity (breaks away from the market); then he also loses his productive independence.

Bourgeois economists regard vertical integration as a mutually profitable form of collaboration between the monopolies and the toiling masses of the countryside on a basis of supposedly complete equality and as a special form of the capitalist planning principle. They see in it a universal means of resolving the principal contradictions that rend agriculture in capitalist countries. In fact, however, the small farmer is caught in complete economic dependence on the monopolistic firm that integrates him. Large farms that establish associations with monopolistic firms find themselves in a different situation. They are highly productive and profitable, but the interests of the large farmers clash with the interests of the monopolistic groups in dividing the surplus value produced by their enterprises. The experience of the USA and the countries of Western Europe shows that the system of vertical integration has not led to the formation of an “organized market” and has not rid the economy of crisis phenomena. Vertical integration denotes a new step in the socialization of production while maintaining private ownership of the means of production, which sharpens the basic contradiction of capitalism. Cooperative integration (in the USA, the Netherlands, and the Scandinavian countries) is also developing. Farmers and peasants are struggling against the monopolistic character of vertical integration and for creation of a system of vertical integration on a cooperative basis.

We also study the vertical structure and equilibrium of the industry when vertically integrated firms cannot outsource the production of the intermediate input and when the industry produces a surplus of the intermediate output.

The net supply of the intermediate product for a vertically integrated firm may be positive, negative, or zero.

Hence, a vertically integrated firm normally produces too much or too little of the intermediate output for its own use.

When the vertically integrated firm can sell the intermediate good as an output, then it can fully exploit economies of scope in the production of the final and intermediate goods.

There are two questions we need to address: First, are there vertically integrated firms in the vertical competitive equilibrium?

p] be the amount of intermediate input that the vertically integrated firm purchases on the market, and let [k.

The success of vertical integration can be measured by the quiet expansion of so many vertically integrated bottle, fiber, carpet, and trash bag makers' recycling operations despite tough market conditions (PT, July '92, p.

Wellman, the granddaddy of vertically integrated recyclers, uses all its 120 million lb/yr of recycled PET in fiberfill and carpet fiber, both of which sell for more per pound than virgin PET.

MHF differentiates itself among other logistics firms as a vertically integrated environmental 3PL, providing all of the project engineering and regulatory management, packaging, transportation (rail, marine, trucking) and equipment necessary for the "end-to-end" movement and disposition of the waste stream.

NeoPhotonics Corporation is a leading developer and vertically integrated manufacturer of advanced integrated optical modules and subsystems designed to improve the performance and lower the costs associated with backbone and access optical networks.

OTCBB:AMWW), a vertically integrated marketing communications consultancy providing organizations with focused marketing solutions, announced today that Art Stevens, co-managing partner of StevensGouldPartners, has been named "Of Counsel," and to the Board, of AIMS Public Relations Group.

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